Banks willing to help Kingfisher if salaries are paid soon

An airlines staff member sits in front of a closed Kingfisher Airlines ticketing counter at the airport in Kolkata on Wednesday. Photo: Rupak De Chowdhuri/Reuters

Updated: Sun, Oct 07 2012. 11 51 PM IST

Mumbai: A group of 17 banks is willing to provide fresh loans to Kingfisher Airlines Ltd if the carrier pays salaries immediately and provides guarantees from its parent UB Group, promoted by liquor baron Vijay Mallya.

The lenders on Friday decided to release Rs.60 crore to the cash-strapped airline so it can pay its staff, who haven’t received salaries since March. The wife of a Kingfisher employee on 4 Octoberkilled herself, allegedly due to financial distress.

The banks are willing to help the airline further if the UB Group infuses fresh funds into the debt-laden carrier that has stopped services since 1 October, according to two bankers who spoke on condition of anonymity.

“We are not planning to pull the plugs now. We are willing to wait for little more as the government has recently relaxed the norms and permitted foreign carriers to invest in local carriers. Moreover, Kingfisher Airlines is claiming that it is in discussions with two global airlines and two domestic investors,” said one of the bankers at a state-owned lender. “We are hopeful that promoters will find a way out as a lot of assets of promoters are pledged to raise funds for Kingfisher Airlines.”

The airline hasn’t shown a profit since its inception in 2005. It has Rs.5,695 crore in debt and accumulated losses of Rs.7,262 crore.

India’s aviation regulator on Friday asked Kingfisher Airlines to explain why its operating permit shouldn’t be suspended as the Mumbai-based carrier struggled to resume flights after declaring a partial lockout because of employee protests.

The Directorate General of Civil Aviation (DGCA) asked the airline to reply within 15 days.

The carrier said on Thursday that it would extend the partial lockout to 12 October, or whenever employees return to work. The lockout was supposed to have ended on Thursday.

Kingfisher Airlines has pledged assets, ranging from its brand to office furniture, for Rs.6,400 crore in bank loans. The assets, including a villa in Goa, two helicopters, the Kingfisher House building in Mumbai and shares, have been shown as collateral for loans as of November 2011, junior finance minister Namo Narain Meena told Parliament in December.

Mallya has also given his personal guarantee to banks, according to the official cited earlier. “Banks have waited for so long and will give Mallya at least a couple of months to see whether he can arrange fresh equity,” he said. “Most banks have provided for their bad Kingfisher assets.”

The lenders have put fresh conditions, including payment of a month’s salary immediately and a written guarantee from the parent company UB Group that salaries will be paid every month, the second banker said.

“We have sought other guarantees from the UB Group, including servicing of loans,” he said, without elaborating.

A Kingfisher Airlines executive confirmed that banks have put conditions for the airline, without disclosing details. “We are simultaneously working to reply to the show-cause notice by DGCA and conditions laid down by banks,” the official said, requesting anonymity. “We have got commitment from promoter Vijay Mallya and we are working towards that.”

Prakash Mirpuri, vice-president, corporate communications, was not available for comment.

It will be difficult for Kingfisher to find investors, according to Mark D. Martin, head of airline projects at Eastern SkyJets, a Dubai-based scheduled and charter airline that operates a fleet of Boeing aircraft.

“In the case of Kingfisher Airlines, the airline has zero executable assets in terms of building the airline up again. What the airline values itself means nothing considering that it has suffered severe blows over the last 18 months globally among the aviation community, airports, passengers and distribution systems companies,” said Martin, previously head of consultancy firm KPMG South Asia’s aviation advisory practice and head of strategy at SpiceJet Ltd.

A pilot at the firm said the top management of the airline met on Sunday but there was no decision about the future. “They are having video conferencing with Vijay Mallya, who is smartly ignoring the crisis by travelling abroad. We have decided not to join duty until we are paid,” he said, declining to be named.

Kingfisher should voluntarily shut down to reorganize and restructure operations, consultancy firm Centre for Asia Pacific Aviation said on Thursday.